Total Value with Lock (TVL) has become an important metric for evaluating decentralized finance (DeFi) protocols. Most traders today use this simple metric to understand the power and potential of a system.
What is Locked Total Value (TVL)?
Locked Total Value (TVL) is the value of all assets included in a DeFi protocol. Since it provides a useful measure of the overall health of a protocol, it has become an important metric for evaluating DeFi projects.
TVL counts all coins currently staked within a protocol, revealing the total underlying supply of the system. This supply corresponds to the locked capital within the system and directly reflects the potential revenues that can be derived from the participation of the investors in the protocol.
You can also use TVL to determine the TVL ratio, which is another important factor about a protocol. This can indicate whether an asset is currently undervalued, a vital piece of information for any crypto investor.
What is TVL in DeFi?
You cannot fully understand TVL without understanding how the term relates specifically to the world of DeFi. After all, the concept was developed primarily as a way to evaluate decentralized protocols and the DeFi system as a whole. TVL offers investors a new way to understand decentralized markets and make important investment decisions.
TVL is often used to measure the health and potential of certain DeFi protocols. By analyzing the value associated with the assets contained in a protocol, you can measure people’s interest in that particular sector of the DeFi ecosystem.
TVL reveals the total value of all cryptocurrencies currently invested in the protocol, without considering potential future returns. This focus on the present makes the metric a tangible, robust data point for analyzing a protocol in real time.
TVL can also serve as an indicator of the entire DeFi ecosystem. Treat the entire DeFi world as one giant protocol and then measure the total value of existing assets.
Calculating TVL Ratios
To really understand the meaning of TVL, you need to understand how the metric is calculated. By learning about the specific factors that determine a protocol’s overall value and TVL ratio, you’ll gain a better understanding of what the metric actually measures and what the numbers say about the service in question.
Calculating the TVL of DeFi protocols requires measuring the metric across different product categories. Each protocol or DeFi service operates according to its own specific structures, and these differences show how TVL can be calculated.
Lending-based services, for example, focus on deposited assets, while tokenization protocols include minted assets. Many protocols combine these features in unique ways and require more in-depth analysis to arrive at TVL. In any case, the calculation of the total locked value and the TVL ratio depends on the consideration of these central DeFi components.
Decentralized Exchanges
Decentralized exchanges (DEXs) are DeFi protocols that provide traders with an easier way to complete crypto transactions. Because DeFi protocols work according to a set of smart contracts, these exchanges attract substantial liquidity, often generating serious returns for investors.
In a DEX, experts can measure TVL by summing up all the assets invested in the stock market. Many of the world’s largest DEXs, such as Curve and Uniswap, have remarkably high TVLs. This indicates the breadth and depth of liquidity that such services attract.
Lending
Throughout the DeFi ecosystem, lending is the most common financial activity. Just like with traditional credit institutions, some owners invest their funds in a protocol to make a profit. Other users who need the currency in the short term borrow from the pool of funds while sending their own locked assets as collateral. This system increases the fluidity in the crypto markets and creates new opportunities for everyone involved.
TVL crypto is an important measure in the world of DeFi lending. It is calculated based on the value of the assets that both lenders and borrowers have invested in the system. MakerDAO, a DeFi protocol with significant cultural and financial influence, leads all other DeFi protocols with over $1.8 billion locked in lending applications. This high figure shows the strength and possible longevity of MakerDAO.
Derivatives
As the DeFi ecosystem has grown and matured, derivatives have become an increasingly common phenomenon. These complex products offer experienced traders a way to manage synthetic assets, generate futures contracts, and increase overall returns from complex investment portfolios. Derivatives, while still foreign to most beginner traders, have become an important component of the overall DeFi system.
In the case of derivatives, TVL is measured by the value of the assets investors put into the respective smart contracts. Synthetix, a popular DeFi protocol that deals heavily with derivatives, has a TVL value of $529 million. The fact that so much value is locked in the protocol indicates that it has the necessary liquidity to serve the needs of its investors.
Liquidity Pools
Liquidity pools are crypto funds locked to a DeFi protocol via smart contracts. They are created through deposits and within a protocol give investors the freedom to withdraw from the available pool of funds. They are relatively easy to measure within crypto TVL parameters, as they involve the direct and immediate locking of assets within a protocol.
Investors usually invest their crypto assets in a protocol in exchange for the return on these assets. Whenever they make these deposits, they increase the value of the total assets held under the protocol. The deposits therefore produce an increase in the TVL of the protocol. The size of a protocol’s liquidity largely determines its TVL; This means that you can often use the metric as a measure of the liquidity available to traders. To participate in
Staking
DeFi protocols, traders must stake a certain amount of their own crypto assets. Once these assets are staked, investors can earn profits through the returns on them. This process, called yield farming, is at the center of the DeFi universe.
Since crypto TVL is intended to measure the entire value of a protocol’s locked assets, staking has an obvious and immediate impact on the metric. When an investor deposits more money into the system, TVL will rise accordingly. A higher TVL indicates that many investors are investing in the protocol, which indicates that the system is in a healthy place.
How to Use TVL?
Once you understand the meaning of crypto TVL, you can start using the metric to inform your decisions. While TVL is far from the only data point to consider when trading in DeFi protocols, it is certainly worth considering.
Not all DeFi protocols are alike, and some are in stronger positions than others. A quick look at TVL will help you decide where to place your hard-earned crypto assets. The TVL ratio or current value measured against the market value of the protocol is also a useful metric. For most DeFi protocols, you can find it using DefiLlama, a DeFi board that countless traders have found useful.
Cryptos with Highest TVLs
It can be helpful to start by looking at projects that have These six protocols use different mechanisms and pursue different goals, but all have impressive TVL numbers. Their apparent strength makes them worth considering the next time you want to invest in a DeFi protocol.
Curve DAO Token
Curve is one of the best DEXs. The protocol’s high TVL boosts its reputation.
Lido
Lido, a DeFi protocol designed to provide liquidity for shared assets, has a current TVL of $7.42 billion. This total value, which reflects the assets traders have staked in the system, has decreased as a result of general market fluctuations, but the outlook for the protocol is still considered positive.
Maker
Maker was an early pioneer in the world of DeFi and continues to attract assets from forward-thinking investors. As a decentralized autonomous organization (DAO), the protocol allows traders to directly contribute to the decision-making process. With an existing TVL of $9.24 billion, the project remains one of the highest value DeFi protocols available to investors.
Aave
Aave is a DeFi protocol focused on lending. Its TVL of $8.24 billion indicates that a significant number of investors have invested in the protocol. As long as this number remains high, both investors and lenders can expect the system to remain strong.
Uniswap
Uniswap joins Curve as a DEX with an impressively high TVL. The current $5.5 billion figure indicates that the protocol will continue to be an attractive option for crypto traders.
Compound
Compound, a lending platform on the Ethereum chain, has an impressive TVL of $3.97 billion. While recent drops in overall value have been somewhat dramatic, the remaining liquidity keeps the protocol’s TVL higher than most of its competitors.
Final Words
TVL, the total value of crypto assets in a DeFi protocol, is an important measure of the health and vitality of a system. The measurement can be useful on a daily basis, whether you want to examine the TVL ratio to evaluate the total assets in a system or to determine if a protocol’s tokens are undervalued.
